Tyre Market: Asian tyre market keeps on rolling

Not only is Asia a major producer of rubber , but the region is also a burgeoning market for global tyre manufacturers , says Angelica Buan in this report.

ASEAN figures strongly in growth

Forecast to reach nearly 3 billion units by 2022, the global market for tyres is unflinching amidst fluctuating prices of rubber in the world market. Asia Pacific captures a strong spot in the global tyres market. Indian market research firm Gfk says that in the segment of replacement car tyres, some 20 players have made inroads in four key Southeast Asian cities in the last two years.

Meanwhile, sales in dominant replacement car tyre markets in the region are not consistent. In the first eight months of the year, Thailand and Malaysia showed healthy growth in sales volume of replacement car tyres by 8% and 3%, respectively; while sales in Indonesia, as well as the Philippines slipped 3% to 4%, respectively, over the same period, Gfk reports.

Thailand, Malaysia, Philippines and Indonesia are the four key markets where GfK conducts Point of Sales tracking for car tyres in ASEAN.

There is stiff competition in the marketplace, according to GfK, with some “weaker players” being booted out of the scene, it says.

“This year, Malaysia and Philippines reported the greatest number of replacement car tyre brands at 61 and 59, while players in the Thai market stood at 51. Car owners in Indonesia had the least number of options, with only 24 car tyre brands available to them,” GfK says in its report.

“What makes the Thailand market tick is because of firstly, the implementation of the first-time car buyer scheme in 2012 and 2015, which stimulated car sales substantially, thereby resulting in demand surges for replacement car tyres in the subsequent years,” Jasmine Lim of GfK in Asia, says.

On the other hand, Lim explains the case in Malaysia as a post-GST affliction. Its sales decline is due to “aggressive” brand promotions by manufacturers that backfired on their brand equity.

“Such strategy (of progressively offering more affordable prices to cater to wider sectors of consumers) could act like a double-edged sword where they risk diluting their brand equity and value over time, while consumers benefit from being able to choose from a widening range of products at various price levels,” she adds.

Tyre applications in aviation take flight

Asia’s air travel market continues to expand. The region’s carriers posted an increase of 10.3% in January this year, compared to the same period a year ago, according to the International Air Transport Association (IATA). Japan’s aviation sector is a strong contender, specifically in domestic travel alone. The country’s domestic travel accounts for 1.2% of the global domestic travel – the latter showing an increase 6.8% of domestic air travel year-on-year, IATA’s January report says.

Japan is a lucrative market for imported aircraft, parts, and engines, the Maine International Trade Centre 2015 aviation reports. The country is a choice base for some of the world’s top tyre makers.

Amidst the soaring prospects for air travel, Japanese tyre maker Bridgestone is gearing up production of aircraft tyres at its Japanese plant. Investing more than US$20 million at its plant in Kurume, Bridgestone is increasing capacity by 50%. The firm is undertaking this expansion to meet the rising demand in the region, forecast to triple air traffic by 2035.

In a related development, Bridgestone says it is introducing its Examation tyre assembly system at its Tatabánya plant, a passenger car tyre plant in Hungary, in 2016. Designed to further improve quality and help realise high levels of productivity with regard to tyre production technologies, the system combines Bridgestone’s proprietary information and communication technologies (ICT) with new artificial intelligence (AI). The introduction of this system at the Tatabánya plant follows the installation of the same system at the Bridgestone’s flagship Hikone plant in Japan, and will be the first time this system is introduced overseas.

The Tatabánya plant is set to have its production capacity increased by 12,000 tyres/ day during the first half of 2017, raising its total production capacity to around 18,000 tyres/day. The introduction of the Examation system will be conducted as part of this capacity increase. Further, Bridgestone plans to introduce Examation at its new Russian plant, scheduled to commence operations this year.

Meanwhile Thailand’s aviation industry, which has buckled down on reinstating its safety rating after it was flagged down by the International Civil Aviation Organisation (ICAO) early in the year, is invigorated with forecasts of increasing air passenger travels and booming tourism that targets over 30 million tourists this year alone.

Tyre makers like US-based Goodyear is seizing this bright prospect. Goodyear (Thailand) is investing US$162 million to build an aviation radial tyre plant and up its production in Pathum Thani. The Thai subsidiary makes OEM and replacement tyres for passenger cars, commercial trucks and retread tyres for domestic sales and exports.

Managing Director Finbarr O’Connor stated that the three-phase expansion is aimed at capturing the growing demand for radial tyres as commercial airlines are rapidly converting their fleets from bias tyres to radial tyres, which are lighter and more suitable for aircraft landings. The first phase of expected to start operations by 2018.

Cashing in on the domestic market

The 240-million populated Indonesia’s automotive sector is one of the most robust industries in the country, and ranked 15th in world in terms of sales, according to a report by Euromoney Institutional Investor Company (EMIS). The latter adds that car penetration in Indonesia is estimated at 40 cars per 1,000 people in the country.

Gfk, in the earlier mentioned report, says that Indonesian car owners enjoy the most affordable tyres, which currently cost an average of US$48, cheaper than its 2014 price of US$52, and nearly twice as cheap as Thailand’s US$90 price.

Jakarta-headquartered PT Gajah Tunggal (GT Tyres), the largest tyre maker in Southeast Asia, is reaping the benefits of domestic sales with double-digit growth posted in the first half of the year as a result of its overseas expansion.

GT Tyres says that competition with Chinesemade tyres in overseas markets such as Asia, Europe and the Middle East are dampening sales. Hence, it is turning to the domestic market to boost sales.

The company, which owns and operates the largest integrated tyre manufacturing facility in Indonesia, reported in August that its sales remained positive in the first half of the year. In addition to the buoyant export performance, GT Tyres says that its domestic replacement market grew by 14.4%, compared to the same period a year ago. However, its OEM segment lagged behind, hinting of a “still challenging environment” for vehicle sales. Meanwhile, its net sales increased by 12.2% to Rp6.95 trillion in the first half of the year, compared to the previous year.

The domestic market is its top growth driver, GT Tyre says. The company also expects some windfall from the government’s industry incentives, such as the tax amnesty programme, which will eventually spur infrastructure projects and incentivise sectors, including the automotive industry.

Expansions in Malaysia

Malaysia too has a robust automotive sector, supported by its domestic market of 30 million. TechSci Research, an India-headquartered research firm, reports that Malaysia’s vehicle motorisation rate (for passenger cars and commercial vehicles) in 2014, stood at around 400 vehicles per 1,000 people. The country’s growing infrastructure also encourages car ownership and this is projected to drive Malaysia’s tyre market.

One of the fastest growing economies in ASEAN, Malaysia houses major automotive OEMs including Mercedes-Benz, Toyota, Honda, Suzuki, Nissan, Ford, and others, which serve both the domestic and overseas customers, TechSci says.

The favourable investment climate in the country has encouraged several companies to tap into the market, too. For example, Tokyo-based automotive parts retailer Autobacs Seven is reportedly investing in a Malaysian tyre company Kit Loong Group. The Japanese firm, which is acquiring 20% of Kit Loong, expounded that the purpose of the capital and business tie-up is grounded on Malaysia’s rapidly growing economy, bolstering car sales.

The company says it sees a large potential in the retail and wholesale of automotive related goods and services, and hence decided to enter into these business fields through an alliance with Kit Loong, which is the largest scale of wholesaler of tyres and fixtures for automobile maintenance in Malaysia. Autobacs Seven adds that the investment is part of its expansion initiatives in the ASEAN region, where it operates stores in Singapore, Thailand, Malaysia and Indonesia.

Another tyre maker that has positioned itself in the Malaysian replacement tyre market is India-headquartered Apollo Tyres, with a Malaysian subsidiary inaugurated in May this year.

Apollo Tyres, which has manufacturing units in India and the Netherlands, also has offices in Indonesia and Thailand.

Touted as the 17th biggest tyre manufacturer in the world, Apollo Tyres’s office in Malaysia – its third largest automotive market in ASEAN – enables it to serve the country’s replacement tyre market that has an annual capacity of 580,000 of truck-bus radials and 9.5 million passenger car tyres.

The country’s replacement tyre market, citing the TechSci report, accounted for around 73% market share in 2014 and is anticipated to continue to grow through 2020. Supporting this growth are the rising vehicle sales and expanding automobile fleet in the country.